In the petition filed in the 68th District Court in Dallas County, Highland Financial, Highland CDO Opportunity Master Fund LP and HFP CDO Construction Corp. — which the petition refers to collectively as plaintiffs or Highland — allege Orrick, Herrington & Sutcliffe LLP of Los Angeles and Orrick, Herrington & Sutcliffe (Europe) LLP of London — which the petition refers to collectively as defendants or Orrick — were negligent in connection with a “proposed multimillion-dollar collateralized debt obligation (‘CDO’) transaction between Highland as borrower and Royal Bank of Scotland plc (‘RBS’) as lender.”

But Baker Botts partner Rod Phelan of Dallas who represents Orrick writes in a statement, “Orrick's advice was correct, thoughtful, and well within the standard of care.”

Highland alleges it hired Orrick in 2007 and 2008 to review two amendments aimed at extending a deadline to close the CDO transaction. The plaintiffs allege Orrick knew Highland paid RBS more than $65 million for the “purported extensions” but Orrick “committed a critical error when it failed to advise Highland that the Amendments did not remove a provision in the original agreements that permitted RBS to terminate the CDO transaction at will.” They allege that, as a result, they paid RBS tens of millions of dollars for “meaningless extensions.”

They allege in Highland CDO Opportunity Master Fund LP, et al. v. Orrick, Herrington & Sutcliffe LLP, et al. that RBS “capitalized on Orrick’s negligence” and terminated the transaction in October 2008 to take advantage of an international accounting standard that allowed RBS to report a $30 million windfall profit when it foreclosed on the underlying assets. As a result, the plaintiffs allege in the petition, Highland lost the $65 million it paid to RBS and now faces an approximately $30 million “alleged deficiency.”

Highland seeks actual damages of about $95 million plus interest.

Phelan’s written statement notes, “Highland's attempts to blame others for its miscalculation of the market for mortgage-backed securities — first RBS and now Orrick — will not succeed.” Phelan writes Highland was “well aware” of the provision allowing RBS to terminate the transaction. “It’s customary, and Orrick had just reminded Highland of a similar provision in another deal. Aware of this standard provision, Highland didn't ask Orrick about it on the RBS deal,” Phelan writes. He writes that Orrick answered Highland’s questions on the deal and “did not discuss the business risks Highland took when it chose to bet on a market turnaround rather than refusing to post more collateral, which would have killed the deal but stopped Highland's bleeding.”

Comments

I don't know if it's fair to call RBS DUMB in this case Perhaps blinded by greed would be more aappoprirte RE: Buffett's Goldmung dealFirst look at what he did and what he's gettingBuffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) agreed to buy $5 billion in perpetual preferred Goldman shares that pay 10% interest. In addition, Berkshire receives warrants giving it the right to buy $5 billion worth of Goldman’s common shares at any time over the next five years at a price of $115 per share. So he's getting 10% (I assume per annum, maybe every quarter?) on his loanplus $5Bn in warrants that are in the money EVEN WITH ALL THIS hammering of GS shares OF COURSE HIS INVESTMENT IS DOING WELL!!!!I'm just wondering how many warrants he's converted since then surely he would have flipped some of the shares when GS was @ $160 unless his dottiness has caught up with him Then there's Blankfein His interview with Charlie Rose shows he's somewhat irascible but when I look at his Subcommittee testimony, as well, I have to wonder how in the hell he got into such a high position?Also, WHAT kind of a lawyer was he?He seems to buckle under examination, is very aberrant in his thoughts (he waffles more than Geithner), and can't seem to formulate comprehensible responses I seriously doubt he was a TRIAL lawyer probably a pencil-pusher (ahhh he was a corporate tax lawyer snaky from the start, I guess)